Andy Immerman was a featured speaker during this webinar program hosted by the Colorado Bar Association. When drafting an LLC operating agreement, virtually the only limitation is the creativity of the drafter. Economic and management rights and tax benefits can be separately allocated to the LLC's members in virtually any manner. To impose some order on this broad flexibility, attorneys frequently rely on "units," variously captioned, as a conceptual planning and practical drafting tool to mimic the bundle of rights represented by stock in a corporation. Though easy and seemingly effective, these units do not correspond to anything defined by state organizational or federal income tax law. This lack of congruence very easily leads to a misallocation of economic and management rights, adverse tax consequences, and clients losing the benefit of their bargain. This program provided a practical guide to the pitfalls of using units when drafting LLC agreements, how to avoid them and how to correct them in existing agreements. The following topics were covered during the program:
- Dangers of using units in LLC agreements to substitute for stock - and the adverse economic control consequences
- How units in LLCs do not accurately substitute for the complex bundle of economic, tax and management rights of a member
- Management rights - how units overpromise governance rights - and successor rights issues
- Economic rights - how units often shortchange the financial interests of a member
- Tax Issues - how the issuance or sale of units leads to substantially adverse tax outcomes
- Identifying unit-based problems in existing LLC agreements - and how to correct them
For more information about this program, please click here.
June 10, 2014